Renewable energy consumption and international trade: Does climate policy stringency matter?

This study explores the connection between renewable energy consumption and international trade, with a particular focus on the influence of climate policy. We argue that this relationship is nonlinear and subject to threshold effects. Using a dynamic threshold model developed by Seo and Shin (2016), we analyze data from 1990 to 2023 for a panel of 29 developed and developing countries. Our findings reveal that climate policy plays a crucial role in shaping the renewable energy–trade nexus, with effects varying according to policy stringency and a country's development level. In developing countries, renewable energy consumption consistently enhances exports, regardless of policy stringency. In contrast, in developed countries, strict policies reduce import dependence, indicating a move toward energy independence, but they may also dampen the positive trade effects of renewable energy due to higher compliance costs and regulatory barriers. These results underscore the need for tailored policy strategies: developed countries should balance ambitious environmental goals with trade efficiency by streamlining regulations and fostering international policy harmonization, while developing countries can leverage renewable energy adoption as a tool to enhance exports, attract investment, and strengthen technological capabilities.